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Tax free cash from a pension fund
The ssinnic
Posted: 28 November 2012 11:56:17(UTC)
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Can anyone help with this?

If you have a personal pens. fund of ,say, £200000, and wish to take out a lump sum of ,say, £25000, (12.5%) leaving the remaining £175000 invested to hopefully grow, and not draw an income, what is the position if suddenly the remaining fund grows spectactually,(say, doubles due to wonderful unexpected takeover bids bumping up prices) and now is worth £350000? Does this enable me to now draw another greater lump sum i.e. 25% of the £350000 or is it only 12.5% of the £350K or is there any other restriction? Or do I now have to deduct the original £25K from whatever I can have? Or Can I even have another bite at this cherry, having already taken some TFC?

Anyone know what the position is?
Roydo
Posted: 28 November 2012 13:14:25(UTC)
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If you take 12.5% TFC, then you will have in effect moved £100000 of your fund into USP. No further TFC would be available from this pot.

The remaining £100k is still a PPP, with 25% still available, so if this bit increased to say £400k, then £100k tfc would still be available.

Different death benefits would also apply to the two pots. Think of it as 2 pots, one "open", (tfc taken), and one "closed", (tfc still available.)

R
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The ssinnic on 28/11/2012(UTC), webber on 30/11/2012(UTC), Guest on 19/12/2012(UTC), Zippy on 05/02/2013(UTC)
Clifford Pope
Posted: 30 November 2012 13:53:43(UTC)
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Presumably the spectacular growth would be apportioned between the two pots, so only that attributed to the uncrystalised pot would be available?

That is if they each held an unidentified proportion of the same investments.
But if each was invested in separate funds, then each would receive its own, probably different, rate of growth?

I'm thinking of the case of a SIPP invested in property, where you might cream off the accumulated rental cash as a lump sum, but leave the property intact to go on generating the same amount repeatedly.

Is that how it would work?
The ssinnic
Posted: 30 November 2012 14:24:00(UTC)
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You make a very pertinent point Clifford because the sort of "spectacular" growth would be only likelyl from either (a) a sudden jump in a share price, or (b) a sudden revaluation of a property. It is highly likely that such growth would occur in only one of the "pots", and if in the already vested pot it seems as though it's 'hard luck' on the poor old investor!
The more I delve into this , the more I am coming to realise that hardly any of these situations has been thought about.
Roydo
Posted: 30 November 2012 14:53:29(UTC)
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Chaps, the "spectacular" growth was used to illustrate the point that it is possible to achieve what was requested in the OP; ie, partially vest a pension and end up with two pots, that are governed by different rules.

The detail in doing so would depend upon a lot of other issues, not least, the current structure of the existing fund.

Re using the rental income from a property in a Sipp, that is perfectly feasible in theory, but again, in practice, might not be as attractive as it initially looks.
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The ssinnic on 30/11/2012(UTC)
The ssinnic
Posted: 30 November 2012 17:09:03(UTC)
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Thank you Roydo,

Yes that's it...different rules!
I think you have understood this problem or potential problem. My fear is that if this were put in front of most insurance co. officials or Revenue men they would just sit back and tell you the usual party-line that "youv'e had your tfc once so that's it"!

The possibility of future growth in a fund and its innocently acquired pitfalls worries me stiff! It makes me think the only thing to do is get the lot out while you can! And as my pseodonym implies, this has to be in the interests of the State who will collect the lion's share if you drop dead by hanging on to it too long, through massive and unfair taxation of thrift and skill in investment expertise.
Roydo
Posted: 30 November 2012 19:01:19(UTC)
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It really is not a problem to achieve. Revenue have no problems with it, but you are reliant on the structure of your existing policy(ies) having the flexibility to cope with the transaction. Let me ask you a question which might allay your concerns on doing something "wrong".

Say you had 2 different PPPs, one with HL, and one with Std Life, both worth £100k. Do you think HL would need to to tell Std, the revenue, or anyone else for that matter if you took the 25% from their PPP, but you left Std untouched? Off course not, and that is what you are trying to do!

Decent providers should enable you to do this, even down to having different portfolios for both pots, say an income portfolio for the vested one, and a growth one for the unvested. Trouble with sites like these is folks tend to focus on funds/charges, and not on the more technical reality of the market place, and the application of rules & regs.

(Wish you could PM on this site!)

R
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jeffian
Posted: 30 November 2012 20:18:40(UTC)
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Roydo,

You sound as if you know what you're talking about, but I have to say I'm surprised. I'm one of the ones who believed "the usual party-line that "you've had your tfc once so that's it"!"

I can understand that if you start with 2 quite separate schemes (as I did), you have options for both. However, the ssinnic suggested he had a single PPP. My understanding would have been that you get 'one bite of the cherry' at taking out a TFC up to 25%, and if you don't use it, you lose it. Are you saying that existing funds can be broken into 2 or more separate funds? News to me!
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The ssinnic on 30/11/2012(UTC), Guest on 19/12/2012(UTC)
Roydo
Posted: 30 November 2012 20:38:51(UTC)
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Jeffian,

As usual with pensions, the answer is yes, and no! There is absolutely nothing in the rules to stop you splitting an existing, single pension into two, as I have shown. BUT, it will all depend upon your existing provider, and if they have updated their systems to allow it. Joe public are led into believing that their pension providers rules are THE rules; they rarely are!

Most, "open for business" life offices can facilitate it, as can most platforms; not sure about HL, but I would be amazed if they couldnt cope.

So, in one respect you are correct. If you have a single PPP with say NPI, and ask for the cash from them, bet they couldnt do it for you without you having to buy an annuity, and you almost certainly could not take it in stages.

Better providers/platforms have effectively now combined all the PPP/SIPP rules into one product, allowing partial encashment, USP, FULL Sipp, (not a HL job), phased drawdown, partial annuity purchase, fee options, et al.

Re your Q, "can one pension be split into two?" How do you think divorce settlements would cope if they couldnt be?

Oh, and thanks for the compliment!

R
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The ssinnic on 30/11/2012(UTC), jeffian on 01/12/2012(UTC), Guest on 02/12/2012(UTC), Guest on 19/12/2012(UTC), Zippy on 05/02/2013(UTC)
The ssinnic
Posted: 30 November 2012 22:12:58(UTC)
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I feel this discussion has been positive and helpful: however, I also have some reservations and am unclear about this business of "splitting" the funds into separate arrangements.That's because I have heard or read that some pension scheme providers arrange the "policy" ( I call it that because that's what most people understand but actually if the fund is with ,say, a Platform like Transact (as example) it's not actually a policy as such but a fund managed by a recognised provider to HMRC) into segments of £1.each for maximum flexibilty. I am a retired IFA and a bit out of touch with things nowadays, but wonder if you would be so good as to add further comment on this:

I have a fund of, let us say, £800000. It has had no withdrawals of any kind to date. It has been accumulated with contributions + transfers from other schemes both FS and DC and of course is self-invested in cash, shares and units.It has enjoyed some growth. It is with a Platform. So can I do any of these;

1. take tfc of .say. £50K and leave rest of fund to accumulate (750000)..........if so does that remaining fund still have tfc entitlement and if so is it expressed as a %age of the fund value? Is the £50K already taken deducted as a sum or is it back-worked to represent a %age? Is that remaining fund moved by my provider to some other title and is it now called something else?

2. Take max TFC £200K and leave rest to accumulate (I think I can)

3. If I do 1, and come back in 2 years time and the £750K is now £1,750,000 (!YES) can I now get 25% of that (£1,75M) = £437500 tfc less the original £50K taken 2 years ago in 1......i.e £387500 tfc?

This is beginning to look like a test paper for an advanced Planners Course!!

Thank you for the responses so far, both of you!
Roydo
Posted: 30 November 2012 22:42:01(UTC)
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The ssinnic;17035 wrote:
I feel this discussion has been positive and helpful: however, I also have some reservations and am unclear about this business of "splitting" the funds into separate arrangements.That's because I have heard or read that some pension scheme providers arrange the "policy" ( I call it that because that's what most people understand but actually if the fund is with ,say, a Platform like Transact (as example) it's not actually a policy as such but a fund managed by a recognised provider to HMRC) into segments of £1.each for maximum flexibilty. I am a retired IFA and a bit out of touch with things nowadays, but wonder if you would be so good as to add further comment on this:

I have a fund of, let us say, £800000. It has had no withdrawals of any kind to date. It has been accumulated with contributions + transfers from other schemes both FS and DC and of course is self-invested in cash, shares and units.It has enjoyed some growth. It is with a Platform. So can I do any of these;

1. take tfc of .say. £50K and leave rest of fund to accumulate (750000)..........if so does that remaining fund still have tfc entitlement and if so is it expressed as a %age of the fund value? Is the £50K already taken deducted as a sum or is it back-worked to represent a %age? Is that remaining fund moved by my provider to some other title and is it now called something else?

2. Take max TFC £200K and leave rest to accumulate (I think I can)

3. If I do 1, and come back in 2 years time and the £750K is now £1,750,000 (!YES) can I now get 25% of that (£1,75M) = £437500 tfc less the original £50K taken 2 years ago in 1......i.e £387500 tfc?

This is beginning to look like a test paper for an advanced Planners Course!!

Thank you for the responses so far, both of you!


As it is now getting late, my response will be short.

1. Taking £50 tfc means crystalising £200k, so £600k left untouched. 25% available of this residual fund.
2. Yes,
3. No. Not quite. LTA, possible protection in place.

Call me.

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The ssinnic on 01/12/2012(UTC)
The ssinnic
Posted: 30 November 2012 23:59:50(UTC)
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Yes but how?
Roydo
Posted: 01 December 2012 00:08:24(UTC)
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The ssinnic;17037 wrote:
Yes but how?


01275 849806
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The ssinnic on 01/12/2012(UTC)
The ssinnic
Posted: 01 December 2012 09:55:26(UTC)
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Thanks. Is there a good time to ring you? It's saturday. I am retired so that's not a prob for me, but I suspect you may be an IFA and this is a weekend so I'll ring you mid am on monday if that's ok.
I see your'e a ciderman!
Roydo
Posted: 01 December 2012 10:12:16(UTC)
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Thats fine. Speak to you then.

In the area, but cant stand the stuff!
jeffian
Posted: 01 December 2012 11:41:42(UTC)
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Thanks, Roydo,

"How do you think divorce settlements would cope if they couldnt be?"

After 36 years of wedded bliss(!) it's not a subject which has ever entered my head. If it had, the experiences of my friends who have been through it and universally ended up significantly poorer, would have quickly extinguished the thought.

As My Old Mum has always said - having been widowed rather too young - "I may be miserable, but I'd rather be rich and miserable than poor and miserable". Wise woman.

8-)
Roydo
Posted: 01 December 2012 14:07:26(UTC)
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Glad to hear it Jeffian!

Point I was making is that pensions are often split due to divorce settlements, which can result in a provider having to comply with a court order to transfer part of a pot to the other ex spouse.

Not really any different than doing what I explained can be done; just providers tend to hide behind "their" rules!
Andrew Barwick
Posted: 02 December 2012 09:08:48(UTC)
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Roydo has just given us a series of clear jargon free explanations about a complicated subject which would allow anyone to check just how flexible (and knowledgeable) their pension provider is and maybe change provider if they fall short.

Great stuff - thanks Roydo
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The ssinnic on 03/12/2012(UTC), Guest on 19/12/2012(UTC)
The ssinnic
Posted: 02 December 2012 15:12:14(UTC)
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I arrive at a number of conclusions:

Many inurance/pension companies only allow certain actions if it suits them.

Many insurance/pension companies interpret the "rules" to suit them.

Many insurance/pension companies interpret the "rules" incorrectly.

The "rules" are open to interpretation in some aspects.

Main conclusion:
I wish I'd saved for my retirement in a different way from a "pension"!!!

Second conclusoin:
To be in the hands of others and their interpretations at a time when it's too late to do anything else (i.e in your dotage) demonstrates very bad planning on my part!I

It's all very well suggesting "change your provider" but in practice this is hardly likely or possible.
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Guest on 02/12/2012(UTC)
The ssinnic
Posted: 03 December 2012 12:01:39(UTC)
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I must say to everyone who has read this post that having had a personal discussion with Roydo on the subject I come to another conclusion:

that Roydo knows his stuff and deserves a special mention. He has a very good understanding of this matter.

I feel entitled to say this as I am neither a journalist with an axe to grind, nor a practisinng IFA (any more) and represent no insurance or pension provider. Nor will I get a fee or pay-back.
It would be fantastic if Roydo has the time to summarise this thread because it is clear that a lot of us have been and still are relatively unclear about what can be done.

So if you (R) have the time or inclination I hope R will be able to respond and summarise.

I hope also that those involved can remain anonymous and impervious to malice, legalities, FOSisticities and FSA repercussions!

Thanks to all.

SS
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